mckinsey-7-s-model

What is The McKinsey 7-S Model And Why It Matters In Business

The McKinsey 7-S Model was developed in the late 1970s by Robert Waterman and Thomas Peters, who were consultants at McKinsey & Company. Waterman and Peters created seven key internal elements that inform a business of how well positioned it is to achieve its goals, based on three hard elements and four soft elements.

Understanding the McKinsey 7-S Model

McKinsey’s model applies to any situation where it is important to understand how the various parts of an organization interact with each other.

Within these interactions are the seven internal elements that McKinsey named, divided into categories, and classed as either “hard” or “soft”.

Hard elements

Hard elements are tangible and easy to identify. As a result, they are targeted for management with various strategies, plans or organizational templates.

They are:

  • Strategy – detailing how an organization plans to build or maintain a competitive advantage.
  • Structure – how the organization is structured from a management and departmental perspective. Common structures include hierarchical, centralized, and autonomous/outsourced.
  • Systems – any process commonly found in daily business operations. For example, product development, manufacturing, or distribution.

Soft elements

McKinsey defines soft elements as less tangible and more difficult to describe than hard elements. They are also subject to change as corporate cultures and values evolve.

Let’s now look at the four soft elements:

  • Shared values – these are often the core values of an organization that define its culture and the way it does business. Many regard shared values as the foundational building block for the other 6 elements in McKinsey’s model.
  • Style – specifically, the management style of company leadership and the way that their behaviors and actions set the standard for other employees.
  • Staff – this refers to the number of personnel in the company and their motivation, preparedness, and ability to successfully do their jobs.
  • Skills – skills describe the talents of an organization’s staff. Skill level determines the level of achievement in the organization and whether such skills are aligned with its goals.

Using McKinsey’s 7-S Model in practice

When using the model in a business setting, it is important to understand that each of the seven elements is interdependent. In other words, adjusting one element alters the other six.

To use McKinsey’s model, businesses should:

  1. Analyze their shared values. Are they consistent with other elements such as structure and strategy? Remember: shared values determine the direction of the rest of the framework.
  2. Analyze their hard elements. Do they work in harmony or there is discord? What needs to change to bring them back into alignment?
  3. Consider whether their soft elements support their hard elements. Again, it is important to identify and address any misalignment of goals.
  4. Make adjustments throughout the process. The act of making frequent and sometimes complicated adjustments will require time and money, but the potential benefit of an aligned and strategic company is worth the expense.

McKinsey 7-S model example

In the final section, let’s analyze each of the seven hard and soft elements in terms of The Coca-Cola Company.

Strategy

coca-cola-business-strategy
Coca-Cola follows a business strategy (implemented since 2006) where through its operating arm – the Bottling Investment Group – it invests initially in bottling partners’ operations. As they take off, Coca-Cola divests its equity stakes, and it establishes a franchising model, as long-term growth and distribution strategy.

According to its website, Coca-Cola is “evolving its business strategy to become a total beverage company by giving people more of the drinks they want – including low and no-sugar options across a wide array of categories – in more packages sold in more locations.”

In essence, this entails building a portfolio of customer-centric brands to ensure that the company’s beverage range remains relevant and attractive into the future.

Structure

The Coca-Cola Company is structured under four geographic segments (Europe, Middle East & Africa (EMEA), Latin America, North America, and Asia Pacific) and two non-geographic segments (Global Ventures and Bottling Investments Group).

Further to these segments are nine additional business units and several product-based divisions that house the company’s portfolio of around 200 brands.

Systems

The Coca-Cola System enables the company to be a global player and operate on a local scale at the same time.

The system comprises more than 250 bottling partners around the world, but the company does not own nor control all of them.

In any case, bottling partners support the manufacturing, packaging, merchandising, and even marketing of Coca-Cola beverages.

Many work with customers such as supermarkets, convenience stores, amusement parks, and cinemas to institute processes and strategies that are best suited to the local region or country.

Shared values

Coca-Cola’s core values include leadership, passion, diversity, equity, inclusion, quality, accountability, collaboration, human and workplace rights, and integrity.

These values contribute to an internal culture that helps the company remain globally dominant.

Style

Coca-Cola utilizes a multi-faceted leadership model that promotes a culture conducive to carrying out its purpose.

These components include:

  1. Be the role model – employees should adopt a growth mindset and create an environment where trust and safety are prioritized. They should also be courageous and aim for the correct outcome as opposed to the most comfortable one.
  2. Set the agenda – this means crafting a bold vision with ambition, communication, and adaptability. Individuals must take inspiration from external sources and ensure all perspectives are heard before decisions are made.
  3. Help people be their best selves – the best leaders build and develop talent by listening more than they talk and setting an example with irresistible passion.

Staff

The Coca-Cola Company offers employees ”the kind of competitive compensation you would expect from a world leader.

In addition to attractive salaries, the company offers various perks under its Total Rewards Program. 

These include medical, dental, and vision plans, supplemental health plans, tax-free accounts, financial programs, and career development opportunities.

Skills

The company has a culture of continuous learning where all employees are encouraged to grow both personally and professionally.

Learning program content is provided by several educational and leadership partners, including Cornell University, Harvard University, FranklinCovey, and MindGym.

A particular focus on leadership development and role modeling supports key elements of Coca-Cola’s leadership structure and culture.

Key takeaways:

  • The McKinsey 7-S Model argues that there are seven internal elements of a business that need to be aligned for that business to be successful.
  • Of the seven internal elements, three are ”hard” elements that are easy to identify and measure. The remaining four are “soft”, in that they are intangible and hard to quantify precisely.
  • The McKinsey 7-S Model is an iterative and often resource-intensive process, but the potential benefits of using this model make it a worthy investment.

Connected Business Frameworks

Porter’s Five Forces

porter-five-forces
Porter’s Five Forces is a model that helps organizations to gain a better understanding of their industries and competition. Published for the first time by Professor Michael Porter in his book “Competitive Strategy” in the 1980s. The model breaks down industries and markets by analyzing them through five forces.

SWOT Analysis

swot-analysis
A SWOT Analysis is a framework used for evaluating the business‘s Strengths, Weaknesses, Opportunities, and Threats. It can aid in identifying the problematic areas of your business so that you can maximize your opportunities. It will also alert you to the challenges your organization might face in the future.

BCG Matrix

bcg-matrix
In the 1970s, Bruce D. Henderson, founder of the Boston Consulting Group, came up with The Product Portfolio (aka BCG Matrix, or Growth-share Matrix), which would look at a successful business product portfolio based on potential growth and market shares. It divided products into four main categories: cash cows, pets (dogs), question marks, and stars.

Balanced Scorecard

balanced-scorecard
First proposed by accounting academic Robert Kaplan, the balanced scorecard is a management system that allows an organization to focus on big-picture strategic goals. The four perspectives of the balanced scorecard include financial, customer, business process, and organizational capacity. From there, according to the balanced scorecard, it’s possible to have a holistic view of the business.

Blue Ocean Strategy 

blue-ocean-strategy
A blue ocean is a strategy where the boundaries of existing markets are redefined, and new uncontested markets are created. At its core, there is value innovation, for which uncontested markets are created, where competition is made irrelevant. And the cost-value trade-off is broken. Thus, companies following a blue ocean strategy offer much more value at a lower cost for the end customers.

GAP Analysis

gap-analysis
A gap analysis helps an organization assess its alignment with strategic objectives to determine whether the current execution is in line with the company’s mission and long-term vision. Gap analyses then help reach a target performance by assisting organizations to use their resources better. A good gap analysis is a powerful tool to improve execution.

Scenario Planning

scenario-planning
Businesses use scenario planning to make assumptions on future events and how their respective business environments may change in response to those future events. Therefore, scenario planning identifies specific uncertainties – or different realities and how they might affect future business operations. Scenario planning attempts at better strategic decision making by avoiding two pitfalls: underprediction, and overprediction.

Other strategy frameworks

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